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Daily Newsletter, Thursday, 01/25/2001

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The Option Investor Newsletter Thursday 01-25-2001
Copyright 2001, All rights reserved. 1 of 2
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************************************************************
MARKET WRAP (view in courier font for table alignment)
************************************************************
01-25-2001 High Low Volume Advance/Decline
DJIA 10729.50 + 82.50 10778.70 10633.40 1.25 bln 1588/1236
NASDAQ 2754.28 -104.87 2849.56 2753.37 2.29 bln 1580/2227
S&P 100 710.81 - 3.52 717.32 709.97 totals 3168/3463
S&P 500 1357.51 - 6.79 1367.35 1354.63 47.8%/52.2%
RUS 2000 499.00 - 3.25 502.25 499.00
DJ TRANS 2980.17 + 37.99 2993.77 2927.56
VIX 24.98 + 0.42 25.44 24.59
Put/Call Ratio 0.63
*************************************************************
What a difference an inauguration can make?
Was that a 180 degree reversal of policy we saw today? You bet!
The king of green and master of disaster, Alan (no tax cut)
Greenspan said a tax cut is warranted and sooner rather than
later. What have you been smoking Alan? That choke collar a
little tighter since the Jan-20th inauguration? It would appear
so since a more open and docile Fed chief did all but say "simon
says" in his televised testimony to the senate budget committee.
The markets turned mixed as the news was broadcast with the old
economy stocks rallying on the possibility of a rate cut and the
Nasdaq tech stocks appearing to roll over on a "sell the news"
event.
Was that just too much good news for the Nasdaq or did the weight
of a +27% gain finally prove too much to bear? According to many
traders the Nasdaq is looking tired. After a +27% gain since the
January lows, profit taking was due. With earnings hype losing
its power as the number of major companies left to report is
starting to dwindle the urge to sell becomes stronger. Couple that
with the idea that our 50 basis point cut is history and we can
only hope for a 25 point cut at best and you get more sellers
than buyers.
The overbought Nasdaq also suffered from some negative news from
Intel. A rumor making the rounds on Wall Street has Intel cutting
prices by more than -40% on its line of Pentium III, Pentium 4
and Celeron chips. The other chip makers will be forced to follow
suit and profits will be impacted across the board. This is a
regular occurrence but analysts are fearing a virtual price war
is forming to capture the few buyers still in the market for a
new PC. NASDAQ:INTC lost -$1.75 on the news and the semiconductor
index lost -29.
The selling was widespread with all the Nasdaq leaders, NASDAQ:CSCO,
NASDAQ:MSFT, NASDAQ:DELL, NASDAQ:WCOM, NASDAQ:ORCL, NASDAQ:SUNW,
NASDAQ:JDSU and NASDAQ:QCOM all weaker. The biggest losses came
from the fiber sector with SDLI dropping -33 on post earnings
depression and frustration that the JDSU merger has been delayed
again. Corning, NYSE:GLW, dropped -13 after warning that future
earnings could be impacted by slowing telecom spending. NASDAQ:CIEN
fell -12 after being painted with the same sector brush. NASDAQ:JDSU
announced earnings after the bell that beat the street by two cents
but said revenues for the next quarter would be only a little better
than this quarter. JDSU was trading down about -3 in after hours.
NASDAQ:QCOM announced earnings after the bell that beat the street
by a penny. QCOM said it had written down almost all of the GSTRF
investment and they were comfortable with estimates going forward.
QCOM was one of the few stocks that traded up in after hours.
The litany of warnings continued with NASDAQ:SAWS beating by two
cents but warned of an industry slowdown. NASDAQ:NTRO beat estimates
but warned of a revenue decline. NASDAQ:ASYT announced earnings of
$.42 vs estimates of $.51 and said a dramatic slowdown in the
semiconductor sector had impacted revenues. NASDAQ:BVSN missed
estimates by three cents and was knocked down to $12 in after hours.
They said higher costs and slowing global sales led to the miss.
Probably the worst announcement after hours today was NASDAQ:PMCS
which announced inline with estimates at $.34 but had harsh things
to say about the future. PMCS said 8 of their top ten customers
were expecting significantly lower revenues and therefore PMCS
could see a -26% drop in revenue to $160 million. PMCS dropped
from $95 to $65 (-$30) in after hours after being halted for some
time. They said CSCO sales were slowing and that brought a drop
in CSCO after hours as well. AMCC fell -$10 in sympathy.
The key today was the testimony and even though the Fed chief said
some pretty bearish and market friendly things the shock was so
bad that traders did not know which way to turn. Just last month
Alan took a strong stance against a tax cut, preferring instead
to pay down the debt with the surplus. Today, after saying that
the economy had suffered a very dramatic slowdown and current
growth was near zero, he embraced a tax cut as a way to restart
the sagging economy. He did not enforce any specific tax plan
but the White House wasted no time in jumping on his bandwagon.
In a press conference immediately after the testimony they
praised the Greenspan endorsement and added their political spin
as well. This was a landmark testimony for Greenspan. This was
a marked turn around in posture and he was absolutely bearish
on the economy. Analysts were torn between being worried about
the new monster in the closet or celebrating the possibility
of another rate cut. Greenspan said consumer confidence was
only slightly above recession levels and tax cuts alone would
be too late to rescue the economy before consumers lost faith.
This would seem to insure a rate cut next week but again traders
appeared to become more worried about the state of the economy
than the possible rate cut. His comments that the current
economic weakness could slip even more were not received well.
Ordinarily, the market would be positive with almost a sure
rate cut next week. Instead, after the severity of the PMCS
warning tonight we could be in for a rocky Friday. Fiber is
down, chips down, networkers down, PC makers down. It will
take more than a rate cut promise to bring the Nasdaq back
to life before the open on Friday. Investors have been buying
bad news for the last two weeks with bullish abandon. The
double shot of Greenspan bearishness and the flood of bad
news led by PMCS tonight could cause a serious problem. Now
here is the catch. If the outlook for Friday is looking so
severely negative tonight and sentiment turns it around and
the Nasdaq trades positive on Friday, then back up the truck.
A major warning, coupled with major bearishness and another
rebound? This would be a serious sign to me that the bulls
were in control. If traders buy this possible dip and push
us back over 2800 then the rally is on! Talk about a sign
from the heavens that would be it. With the Nasdaq futures
down -50 and the S&P futures down -5 we will need a lot of
bullish sentiment to appear before morning. Still, Friday is
profit taking day and all these events together could provide
some interesting volatility. In any case I would buy any
rebound after 3:PM if bargain hunters start to appear. Rate
cuts are a powerful antibiotic for earnings woes and traders
will be lining up to get their shots next Wednesday. That
line is likely to start Friday afternoon.
Enter passively, exit aggressively!
Jim Brown
Editor
************************************
Spring Options Workshop and Bootcamp
April 5th-9th, Denver Colorado
************************************
OptionInvestor is proud to announce our third annual Spring
option workshop in Denver Colorado. This power packed five-day
event is structured to fully educate you on advanced option
strategies and will make you a better and more profitable trader.
If you attended the March Denver Expo last year and thought it
was the best function you had ever attended... You haven't seen
anything yet! Great food, entertainment, education and just
plain fun in sunny Denver. The biggest complaint in March was
the massive weight gain experienced by the attendees from the
gourmet menu. We know how to put on a function. Ask anyone who
came last March!
We guarantee the speaker lineup to be second to none. In the
October seminar not only did we have Jim Brown and over 15 of
the OIN staff but Steve Nison, the father of modern candlestick
charting. Also, Dick Arms, creator of the Arms Index or the Trin
Indicator, Gregory Spear, author of the Spear Report, Stan Kim,
founder of the Snail Trader System and Jim Crimmins, president
of TradersAcounting.com. We promise the lineup this April will
exceed your expectations again!
This is not a beginner seminar but if you feel the need to brush
up on the basic trading strategies then we have an optional boot
camp the day before the four day seminar begins. If you have
traded options before and you are comfortable with the basic
strategies then this seminar will take you to a new trading
level. If you have been trading options for sometime and are
ready to broaden your knowledge and improve your trading results
in all kinds of markets then this is for you. Meet and interact
in a small group setting with the writers you have seen in
OptionInvestor for the last four years.
We are starting the seminar with an optional one day boot camp
which will cover all the basic strategies, calls, puts, leaps,
covered calls, naked puts, spreads, straddles, etc. This will
help investors not familiar with all the basic strategies get
up to speed before the intensive education and the advanced
material in the main seminar. The boot camp will be 8 hrs of
personal instruction by the OIN staff.
The main seminar will begin with a reception, dinner and
entertainment on Thursday night and continue non-stop until
noon on Monday. We mean non-stop. We don't quit until you do
and many optional sessions last until 10:PM or later.
The detailed schedule will be posted in about two weeks. There
will not be individual breakout sessions during the day. Each
topic will be covered in 1-2 hr general sessions taught by one
or more OptionInvestor staff and presented on three giant screens.
In the evening we will offer five of our popular chalk talk
sessions for that personal question and answer interaction.
The list of instructors is led by Jim Brown and will include
many OIN staff with outstanding guest speakers during lunch
and dinner each day. The Spring Denver Expo seminars fill up
fast and seating is limited! SIGN UP NOW or risk missing out
on this opportunity.
Unlike other seminars with only two or three instructors, you
will get in-depth knowledge from many different instructors
who are experts in their field.
The cost for the four-day workshop, April 6th to 9th is only
$2995 (spouse only $1495). This includes breakfast, lunch and
supper each day. All course materials, a CD of all the
presentations and a professional video package of the entire
seminar so you can review the material at home in the comfort
of your living room. There is also a $500 discount if you
have attended a prior OIN seminar.
This is not a prepackaged presentation that gets repeated over
and over with stale information. This is a one-time production
and everything is fresh, live and as current as we can make it.
The videos will have your real time questions and answers and
not some from a prior class. Where else can you get intensive
yet personalized options education like this?
Do not delay as seating is very limited.
We guarantee you will not be disappointed!
You can pay for your education one bad trade at a time or you
can invest less money one time to learn how to do it right.
Click here for more info:
https://secure.sungrp.com/workshop/april01/index.asp
If you have not been to one of our Denver Expo seminars before
here are some comments from previous attendees:
The words herein are totally inadequate to express what I am
feeling about you and all the OptionInvestor organization. But
this medium is all I have. Thank you more than these few simple
words can say.
Wow, what a seminar! In my 25 years of investing I have attended
many instructional conferences, but I have never, never experienced
one like your Options Expo. The instructors were absolutely tops.
Subjects, generally were on target. Especially for me, the Skybox,
index funds/options and the early morning strategies and trading
were particularly great. The attention to the many details and
nuances were especially evident, and I guess most of the credit
that area goes to your great support team.
Now, the real challenge is to apply and implement the powerful
knowledge I was exposed to.
Sincerely and warmly,
Kevin Hughes, Denver
************
Jim & Staff,
I am sitting in the hotel room after a great 3 days in your
seminar. I can't tell you how pleased I am and want to thank
each of you for a job well done. Having been responsible for
events like this, albeit on a much smaller scale, I can recognize
all the hard work that went into the seminar. Each member of the
staff is to be congratulated!! The seminar confirmed my belief
that the OIN staff really cares about the success of their
subscribers. Jim, you all should be proud of the work you do to
enrich the lives of so many people. It is one thing to amass a
personal wealth. It is a much higher calling to help others meet
their goals in life. I was very impressed that you were emotional
in your closing remarks. You have so much to be proud of -- helping
people fish all over the world! Thanks again and I look forward
to attending another seminar in the future.
My best regards,
Jim Boettcher
Austin, Texas
**************
I must say, that your seminar was outstanding!!! Sign me up for
next year. It is rare that a person of your position would share
so generously your knowledge of his trade. I hope that I will be
able to put into place much of what you taught. Every aspect of
the seminar was first class, from the hotel, to the food, the
instructors and the luncheon speakers. One of the biggest
surprises was your generosity in handing out material, and gifts.
Two weeks ago I attended a competing option seminar in Chicago
and all I got from the was coffee at the morning break, No
handouts, no food and half of the final day was promoting their
web site and additional classes. I must say your seminar far
exceeds what I got from them.
Sincerely yours,
Mike Lillis
***************
Please pass on my thanks to the entire OIN group for a fabulous
EXPO. The seminar far surpassed any expectation that I would have
fathomed, had I attempted to! OIN has the right attitude and the
obvious ability to be a leader and I look forward to many years
of positive experiences with you folks.
Kind regards,
Gwen Richardson
****************
GREAT JOB TO EVERYONE!
I described this event to my friends as a life changing event!
(options aside) ,the quality of people, dedication, sacrifice
of their time (the second 40+ hours a week they don't have to
work but do) they do this because they care, wanting to help
others change their life dramatically (My wife thinks I was
oxygen deprived up there !) I came back a different person for
those who know me that says a lot. Now for the options side
I have to admit there was so much info to absorb, most of it
came to me on the 2000+- mile ride home it all started to fall
into place I feel Very confident (yes Jim this can be bad but
I know this now!) Notice the patience here guys! that's one
change I have a plan to stick to !
THANK YOU !!!
Allan O'Neill
**************
Need we say more? If you want to learn how to be a better trader,
making more and losing less then you should come to this seminar.
We guarantee you will not be disappointed!
For more info:
https://secure.sungrp.com/workshop/april01/index.asp
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****************
MARKET SENTIMENT
****************
A Market-Moving Event
By Austin Passamonte
All eyes and strained ears were on Greenspan's speech today. This
was almost bigger news than Madonna's wedding in the U.K. not
long ago!
Anyways, once the Democrats got done taking big Al to task for
the idea of tax cuts (after all, that money is now in
government hands... where does he think it came from?) they
got around to asking about the economy. Some of these Senate
ramblings droned on through their allotted time with nary a
question asked and no relevant point made in the process.
When given the chance to speak, Al told us he saw almost 0%
economic growth this year. That is zero, nothing, nada. Slow
is slow but that sounds like stalled to us. He assured all who
listen that it'd be prudent for the Fed to act early & often
to spur higher growth than that.
No action by the Fed would allow negative growth (Fed-speak
for loss) to prevail. That's not conducive to a healthy
economy and resumption of the raging bull.
So the markets rallied wildly on the hint. Well, at least one
of them did, but not the market most momentum traders even
know exists. That one headed down and hardly looked back from
there.
No significant trends are likely to develop until the final
rate decision is announced next week. We'll probably witness
markets moving up and down each session and each part of every
session while price action coils in anticipation of results.
Technical signals are very divergent for different time frames
and indexes, prone to change each day. Selling time is the only
good approach right now but even that must be managed with care
once a decision is rendered and markets select the next major
direction.
This has been one of the worst January markets for trading we
can recall in quite some time. Good news is, there are eleven
more following it this year alone and quite a few more after
that we've been told. No need to press trades, they will find
us when the time arrives.
Fluctuating volatilities with widened bid/ask spreads challenge
even the most nimble of day-traders. This is a very good time to
bide time. Those of us married to the monitors each session can
easily fall prey to false starts which seem to be emerging moves
but are not. This weakness will slowly whittle a trading account
down to low levels by the time large moves begin to emerge.
We can all tell you stories about trading our way back to even
and working real hard to get there. Monitor key levels of
resistance and support, be prepared to act when bounces or breaks
seem imminent and impatiently wait until next week's decision is
clear. We'll work on getting back to even together from there!
*****
VIX
Thursday 01/25 close; 24.98
VXN
Thursday 01/25 close; 63.48
30-yr Bonds
Thursday 01/25 close; 5.69%
Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.
Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price.
Thursday
(01/25/2001)
(Open Interest) Calls Puts Ratio
S&P 100 Index (OEX)
Resistance:
750 - 735 6,168 318 19.40
730 - 715 2,031 1,412 1.44
OEX close: 710.81
Support:
705 - 690 6,383 8,183 1.28
685 - 670 1,896 4,409 2.33
Maximum calls: 700/3,205
Maximum puts : 650/4,220
Moving Averages
10 DMA 701
20 DMA 694
50 DMA 702
200 DMA 759
===
NASDAQ 100 Index (NDX/QQQ)
Resistance:
74 - 72 25,625 1,512 16.95
71 - 69 58,904 6,208 9.49
68 - 66 26,312 31,657 .83
QQQ(NDX)close: 64.50
Support:
63 - 61 20,700 17,461 .84
60 - 58 17,362 48,779 2.81
57 - 55 8,138 25,386 3.12
Maximum calls: 70/51,936
Maximum puts : 60/42,598
Moving Averages
10 DMA 64
20 DMA 61
50 DMA 64
200 DMA 83
===
S&P 500 (SPX)
Resistance:
1425 18,117 4,731 3.83
1400 15,066 1,754 8.59
1375 12,720 6,584 1.93
SPX close: 1357.51
Support:
1325 12,804 12,405 .97
1300 1,669 12,813 7.68
1275 414 9,990 23.91
Maximum calls: 1425/18,117
Maximum puts : 1300/12,813
Moving Averages
10 DMA 1341
20 DMA 1328
50 DMA 1335
200 DMA 1418
*****
CBOT Commitment Of Traders Report: Friday 01/19
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade.
Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs are not.
Extreme divergence between each signals a possible market turn in
favor of the commercial trader's direction.
Small Specs Commercials
DJIA futures (Current) (Previous) (Current) (Previous)
Open Interest
Net Value +1909 -108 -8322 -5438
Total Open
interest % (+20.07%) (-1.37%) (-34.26%) (-58%)
net-long net-short net-short net-short
NASDAQ 100
Open Interest
Net Value +1131 +1861 -4045 -3982
Total Open
Interest % (+6.51%) (+11.29%) (-6.39%) (-7.13%)
net-long net-long net-short net-short
S&P 500
Open Interest
Net Value +69254 +59586 -89836 -86815
Total Open
Interest % (+37.35%) (+37.29%) (-11.84%) (-11.19%)
net-long net-long net-short net-short
What COT Data Tells Us
----------------------
Indices: The disparity between the Commercials and
Small Specs has increased on the DJIA with Commercials showing a
significant increase in their net-short positions and the Small-
Specs moving net-long.
Interest Rates: Commercials are moderately short T-Bond and
T-Note futures. (mildly Bearish)
Currencies: Commercials continue to build heavily short Euro
futures while small specs build net long. Small specs are betting
on interest rate reduction while commercials remain skeptical.
(Bearish)
Energies: Commercials are net-long crude & oil products at one
year extremes. These producers are hedgers and almost always take
the opposite side of expected market action to lock-in production
prices. They expect lower prices from here (Bearish)
Metals: Commercials are moving to net-long in Gold, Silver and
Copper from short positions. This has happened quickly and they
expect higher precious metals soon.(Bullish)
COT/CRB: This commodity index measures the entire spectrum of
commodities in overall bullish or bearish outlook. It is now at
a one-year high for commercial bullishness, meaning the outlook
for commodities is long-term positive while equities as a mirror
are considered long-term negative.
Data compiled as of Tuesday 01/16 by the CFTC.
**************
MARKET POSTURE
**************
Please visit this link for Market Posture:
http://www.OptionInvestor.com/marketposture/012501_1.asp
**************
TRADERS CORNER
**************
Making Rational Decisions When Things Aren't So Rational
By Molly Evans
It's not just easy to get emotional about trades going against
you, it's downright hard not to. A part of it might be ego, yes.
After all, we would not have entered the trade if we thought
we were going to lose money by being wrong. Yet, sometimes,
even though we identify a favorable looking setup, it just
doesn't pan out.
If you were long Nasdaq stocks and had to watch today, you
probably felt some heat. I know I did. I was even bearish
going into the day but still decided to hold some calls thinking
that I liked my entry point and that I had enough room to let
the market noise play its tune. But then it kept going down,
and then down a little more, and then down to where I was nearly
even with my original entry point. I thought the Nasdaq would
retrace, but I also think the longer term trend is up here for
a bit. So why didn't I exit yesterday with my profit? Well,
in hindsight that would have been the brilliant thing to do - and
I even had the sell signals but just for once, I'd like to let
the market run its course and let my winner run. Maybe somewhere
in the nuts part of my brain I wanted to test how well the stock
would hold up in the face of adversity. I want to be a strong
long. So, I held through the close last night. Darn it.
I'm exposing my weaknesses to you once again. Forget that "I
want to be a strong long" quip! You didn't believe that did you?
I admit it! I like to swing for the fences. Greed once again
wins over fear. I had a nice profit as of yesterday. Now that is
gone and I am left with something I'm not sure that I want to be
holding.
So what is a girl to do? Instead of panic selling at what could
be a bounce area, I take out my trading journal, pretend that the
market is closed and write about what is happening. I tell the
journal that on no adverse news and lighter volume my stock has
retraced but is now sitting on a solid trend line. On the 60
minute chart I have five prior tests of that trend - my entry was
number four. The 60- and the 30-minute charts are both oversold
but not showing any signs of life yet.
Now I start to pose some questions to myself:
Q: Would I be a buyer here? Of calls that is?
A: Well, yes, if I thought the Nasdaq was going to be turning
around in the very near future.
Q: Where is the Nasdaq?
A: It's at the 2750 - 2760 range.
Q: Where did I think the Nasdaq would retrace to?
A: I thought it would first fall back to and test its 50 dma
which is currently at 2707.
Q: Can you draw a line of support and resistance from prior
sessions through that level?
A: I can think of a thousand different places to throw lines.
Yes, I can draw a line there.
Q: Can you figure how far that is to go and apply it to your
stock? Is your stock stronger than the Nasdaq or is it
stronger, weaker or running with it?
A: Hmm, let me do a little calculation. The Nasdaq is off
3.66%. My stock is off 4.77%. (Guess I got my answer on how
it would hold up in the face of adversity, eh?) That 2700
level is down another 2% from where it is now.
Q: If the Nasdaq goes there, where would your stock be expected
to be?
A: Ahh, well, that wouldn't be to the point of my stop loss yet
but I'm still losing money after I had a profit. That is a
big sin.
Q: What expiration are these calls?
A: March
Q: Ahh, is that the crutch why you held yesterday even though you
thought the market was going down?
A: *Blushing* - yes.
So, I held. The market was closed in my book. The annoying thing
is that I had to do that with four different trades today. I had
puts that went against me too! Can you believe it? Sometimes it
just doesn't pay to get out of bed.
The market is full of opportunity. You simply have to watch your
charts, be patient for the signals, enter with confidence, have
discipline to stop yourself out if you're wrong and control your
emotions. See, it's so easy. (GULP)
Hope you all fared better today than I. Tomorrow looks to be a
bit hairy again. We closed on the lows of the Nasdaq and the Dow
was really strange today. I know, I know - defensive rotation.
Picture a waterbed. We're just rolling all that money around.
I have a feeling that tomorrow I'm going to be having another talk
with my journal about never again letting a profit turn into a loss
and how I need to have more discipline about not getting so darned
greedy. Take the money and run, girl.
That's all I can think of for tonight. My kids are wanting to
order a pizza and are pacing the floor wanting their fill. Best
wishes to you for a profitable day and a great weekend.
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************************************************************
PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.
CALLS:
*****
SLR $39.50 -1.15 (-2.45) Recent sideways action had put our call
play on SLR on probation. We tightened our stop yesterday to not
only protect our profits, but to make sure that upward momentum
remained intact. Since Tuesday's announcement that the company
would buy Centennial Tech for $108 million, the stock price has
been drifting lower as it now faces resistance from its 5-dma
($40.68). Today the stock experienced further weakness, closing
below its 10-dma ($39.76) as well. While still above our stop
price of $39, we've seen enough to take SLR off probation and
onto our drop list before negative momentum accelerates, further
eroding our gains.
CIEN $90.06 -11.94 (-14.75) Despite solid earnings last night,
GLW tanked the Optical sector at the open this morning due to
bearish comments about the future, and it got worse as the day
progressed. For its part, our CIEN play plunged through our
$94 stop this morning and never looked back, continuing lower
right into the close. Sentiment has clearly shifted towards
the bears, and it is time to take our leave of this play.
NUFO $41.63 -7.28 (-13.00) Another Optical play that got mauled
by the bears this morning, NUFO gapped lower in response to
the negative comments contained in the GLW conference call
last night. After a weak attempt to hold the line at the
$44-45 support level, the bulls headed back to the barn,
letting the bears have their way with the stock. This resulted
in a quick violation of our $44 stop, and the bulls didn't even
attempt to stage a rally as the day drew to a close. It's time
to say goodbye to NUFO as the sentiment and technicals are now
solidly in the bears camp.
APCS $14.69 -0.44 (-2.44) After last Friday's breakout to a near
term high, APCS looked poised to continue its move along with the
advancing NASDAQ. This week, the stock pullbacked while
consolidating its recent run. We had placed our stop at $15 and
today the stock dropped below it. Therefore, we are leaving this
play tonight rather disappointed.
PUTS:
*****
BA $59.25 +1.81 (+3.56) Positive reception of the results of a
December "Star Wars" test seems to have provided some much
needed life to shares of BA. The stock has been struggling to
break above the $58 resistance level, and the news this morning
seems to have been just the catalyst that was needed. After
struggling early in the day, the bulls took charge and pushed
the price right through our $58 stop on solid volume. After the
past 2 days consolidation, today's strong move pulled the
stochastics out of oversold territory, and it looks like we may
see some follow through in the days ahead.
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The Option Investor Newsletter Thursday 01-25-2001
Copyright 2001, All rights reserved. 2 of 2
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PLAY UPDATES - CALLS
********************
RATL $50.81 +3.56 (+3.00) Demonstrating its true technical
strength, Rational bucked the down trend in the Nasdaq today to
close higher, after opening near support at the 5 dma of $48.
Resistance at $50.50 continued to present a problem for
RATL this week, and the close above this point could is a very
bullish sign, and a good entry point. A break above $52.44
could lead RATL on a clear path to resistance at $60. More
aggressive traders can take positions near support at $48, or
$49, after checking the software sector for strength. Continue
to set stops at $46.
ITWO $56.06 -4.38 (+2.38) A break through key resistance, high
relative strength relative to industry peers and the possibility
that the company could take a leadership role in its sector are
just a few of the factors that led to ITWO's addition to our call
play list yesterday. On Wednesday, ITWO closed up $4.03 or over
7 percent on 150% of ADV. While we did get a pullback today,
giving back yesterday's gains, volume was light, only 75% of ADV.
The positive price/volume action suggests that today's trading
was likely profit taking, though the stock closed just below
5-dma support at $56.64. If the buyers return to the NASDAQ
tomorrow, lifting Merrill Lynch's B2B HOLDR (BHH) along with ITWO
back above it's 5-dma, this could allow for an entry on strength.
Firm support can be found below in the $53 area, where the 10
and 50-dma are currently converged, but in entering on a dip,
make sure ITWO closes back above our stop price of $55.
MERQ $89.75 -5.75 (-5.63) So far this week, shares of MERQ have
been in consolidation mode, trading in a tightening range on
decreasing volume. A little bit of fence sitting on the part of
traders yesterday ahead of Alan Greenspan's testimony resulted in
a fractional close up on lighter than average volume. Today, the
stock gave up about 6 percent on a shaky NASDAQ. However, volume
was light, less than 70% of ADV. Moving average support from the
10-dma at $87.77 and the 50-dma at $86.67 could allow aggressive
traders to enter this play, but only if bounces are backed by
heavy buying interest and rivals BMCS and CPWR show signs of
strength. In buying the dip, keep in mind our stop price of $88
as a close below that level could be a signal to exit. If
positive sentiment returns to the Tech sector, then a break above
$90 on volume could allow for a more conservative entry, as MERQ
attempts to move back above its 5-dma ($93.40).
RMBS $50.19 -3.50 (+2.81) RMBS set the pace for Chip stocks
yesterday as it advanced $4.50 or over 9 percent on almost 150%
of ADV. While the company rallied with no company-specific news,
the strong buying interest was a positive sign, as it led its
sector higher. With caution the key word in mind for traders of
Tech stocks today due to the Alan Greenspan factor, RMBS gave
back 6.52 percent today. But with trading volume less than 70%
of ADV, and support from its 5-dma near $50 holding firmly, RMBS'
uptrend remains intact. At this point, support below is
building. Aside from the $50 level, the 10 and 50-dma at $47.60
and $47.09 could allow aggressive traders to take a position,
provided that any bounces are strong enough to take RMBS back
above our stop price of $48 before the closing bell. If the
buyers return and RMBS can break through minor resistance at
$51.50 on volume, this would allow conservative traders to make a
play, but only if the rest of the Chip sector shows signs of
strength, as gauged by the Philadelphia Semiconductor Index
(SOX).
UBS $173.00 -0.61 (-0.75) With resistance overhead at $175-176
and support below at $170, shares of UBS continue to be range
bound, trading on low volume. But don't let the sideways
movement fool you. Connecting its lows since late November
reveals its intermediate term uptrend line. The recent
consolidation has allowed enough time for that trend line to
catch up with the stock's advance. It is interesting to note
that the stock opened right on its uptrend line today and from
there, moved higher. While UBS did end the day down, volume
continues to be anemic, less than 22 percent of ADV today. Look
for support in increments of $0.50 from $173 down to our stop
price of $170, entering only when buying volume backs a bounce.
UBS struggled with its 5-dma ($173.85) today. A break through
this moving average on volume with sector sisters BSC, LEH and
MWD also posting gains could be a potential conservative entry
point.
WCOM $20.38 -1.13 (-1.63) WCOM at the price of $20 appears to be
a key support for this stock, one that is in the process of being
tested. On Wednesday the stock bounced just above this level and
ended the day up almost 4 percent on low volume. Today WCOM
tested $20 yet again but in the process of doing so, closed down
5.23 percent, once again on light volume. It's no coincidence
that we have also placed our stop price at this important point,
as a break below $20 would all but confirm a loss in upside
momentum. Aggressive traders may target this area for an entry,
but only do so if there is heavy buying volume to justify taking
the risk. For the more risk averse, wait until WCOM clears
5-dma resistance at $21.07 before considering an entry, but make
sure that sector sympathy is on your side by watching Merrill
Lynch's Telecom HOLDR (TTH).
ARBA $38.25 -2.63 (+0.00) ARBA extended its Tuesday's gains and
flirted with $43 and $43.13 on robust volume in recent sessions.
The $40 level demonstrated a relative level of strength intraday
and should emerge as the higher level of support if ARBA can
crack the overhead resistance. But when the rubber met the road
in late afternoon trading today, it was the $38 level that
proved resolute. The rebound off $38 and the 10-dma was
distinct. If ARBA can hold up in tomorrow's session, then an
aggressive trader might consider taking positions off this level
on strong bounces and ride the momentum until ARBA converges
upon the resistance. At that point, consider locking in gains
and jumping back in on subsequent advances. In the news, Ariba
and Vignette (VIGN) inked a B2B strategic alliance to bundle
their respective solutions together and provide greater
efficiency.
EBAY $49.81 -4.56 (-0.31) The tremendous potential of this e-
business company makes shares of EBAY appear undervalued at the
moment. Wit Soundview concurs with this general consensus and
came forward with a Buy recommendation yesterday. Investors
pushed the share price up to $55.13 in recent sessions, but the
momentum couldn't propel EBAY through the formidable 200-dma
($55.35). This overhead resistance is a thorn in our side.
Therefore, if you're not interested in taking positions at the
low end of the spectrum near our $50 protective stop and taking
profits as EBAY approaches the above-mentioned resistance, then
wait for the big breakout before going long.
SNPS $52.06 -1.66 (-1.13) The cliché of old resistance becoming
support proved true this week. SNPS broke out above the
$52 level last Friday and saw $56.50 by Tuesday. Following a
characteristic pattern, profit takers entered the scene
and took some chips off the table. And so now, we have SNPS
perched on the 10-dma ($52.26). The aggressive types might take
entries on high-volume rebounds off this level if SNPS shows
some spunk above the 5-dma ($53.85). It may however, be wise to
set sell limits near the $56 level in the event SNPS cannot
generate enough momentum to successfully penetrate the immediate
resistance. On the downside, our protective stop remains set at
$52.
PLAB $33.94 -1.38 (-0.31) PLAB played peek-a-boo over the $35
cap in recent sessions. The upside spike to $36.38 and $35.44,
respectively, offered traders a glimmer of hope that PLAB can
indeed shatter the topside resistance. The pressure of the
higher-lows within the ascending wedge formation also hints that
a big breakout is imminent. Look for strong intraday volume at
over 100 K to lead the upswing. Conservative traders will also
want to see definitive upside strength above $35 before jumping
into the momentum. We've kept our stop at $32, which is below
the 10-dma ($33.27), but it'd be could be quite hazardous to
enter on a dip in this vicinity.
AETH $50.88 -5.09 (+1.81) The profit taking that we have been
watching for on the NASDAQ came in spades, prompted by the
selloff in the Networking Index (NWX.X). Given its
overextended condition, it is no surprise that AETH succumbed
to the bears assault, giving up nearly 10% on the day.
Closing fractionally above the low of the day, we need to see
the price bounce near current levels to keep our play alive.
If buying interest comes into the stock above our $50 stop,
then aggressive traders will have an attractive entry point.
Somewhat supportive of the simple profit taking theory is the
volume today, which came in at only 80% of the ADV. Hopefully
the earnings tonight combined with anticipation of next week's
FOMC meeting, and the much ballyhooed rate cut, will give us a
bullish move to close out the week. More conservative players
will want to wait for AETH to climb back over the $55 level on
strong volume before opening new positions. With earnings set
for February 7th, this may be the pullback we were waiting for
before the final rally begins.
BRCD $101.69 -3.75 (-3.31) Going the way of the broader NASDAQ
early in the day, BRCD was one of the few, the proud that
bounced off their lows to post a recovery as the day drew to a
close. Still giving up nearly $4 on the day, this was much
better than the nearly $7.44 intraday loss. The bounce which
began at the $98 level came on strong volume, and prompted us
to keep the play alive for another day, despite the fact that
it violated our $100 stop intraday. The "sell the news" crowd
is apparently alive and well in the Technology sector, and the
selling pressure has spilled over into shares of BRCD. While
aggressive traders were able to grab an attractive entry point
this afternoon as the price recovered back over the century
mark, more conservative traders may want to wait for a move back
over the $105 level before playing. If the rally is going to
resume, we need to see the bulls take out the $113-115
resistance level before the stochastics descend out of the
overbought region.
GS $113.56 -4.31 (+2.63) Our new play on GS almost triggered
our $113 stop this afternoon, and it is skating on thin ice.
Although it was overextended and needed to see some profit
taking, the 3.6% loss came very close to kicking GS off the
play list tonight. Closing very near the low of the day, even
aggressive traders didn't get an entry signal yet, because there
has been no bounce. If the stock can recover from current
levels, that will be a healthy sign, and an indication to
consider new positions. More conservative players will want to
wait for the bulls to show their horns first. If GS can get
back over the $116 level on solid volume, it will be a good sign
as the stock will have confirmed its upward trend by posting
another higher low. The tone of Greenspan's testimony today
would seem to indicate that the 0.50% interest rate drop is
still a possibility, and this should continue to benefit
Financial stocks. Keep an eye on the Brokerage sector (XBD.X)
for confirmation that the bulls are still in charge.
*******************
PLAY UPDATES - PUTS
*******************
AT $67.88 +0.13 (+0.05) Broad based weakness in the telecom
sector helped our AT put play, as the stock rolled over from
the converged 5 and 10 dma of $67.75 this morning. It now appears
to be well positioned to roll over again at the same level. The
more times AT fails to move above $68.50, the stronger the
potential to drop to the next major support levels at the 50 dma
of $66.38, and $64. Traders can consider taking positions on
another roll over from $67.25, or on a break below the $66.38
level. Watch the telecommunications sector index (TTH) for
weakness before initiating put positions. Keep stops at $70.
NKE $54.13 +1.75 (+3.02) Roll, roll, roll, it seems that is all
Nike is doing these days, which has the potential to benefit put
players. After rolling over at $56.25 last week, Nike has made
a series of failed rallies, by rolling over at $54, and the
5 dma of $53.37. Nike tried to rally today, and attempted to
clear resistance at $54.31, and $54.25 before closing at $54.13.
It looks poised to roll over from this level, depending on
market conditions. Traders can take positions at current levels,
or wait for a roll over from $53.37, or $52.44. A drop below
the 50 dma of $50 would be a very bearish move. Keep stops set
at $60.
IDTI $45.56 -0.69 (-4.69) As the NASDAQ faltered under the load
placed on it by negative news from GLW in its conference call
last night, our play on IDTI managed to hold its ground. Given
the fact that it didn't significantly break down over the past 2
days, it would seem to indicate that the selling pressure from
the company's earnings miss last week is losing steam. Although
the stock did creep lower over the past 2 days, IDTI is now
resting right on the $45 support level. Selling volume has been
drying up, and we will need to see the bears come back to life
to drive the stock below this level. Further declines in the
Networking (NWX.X) and Semiconductor (SOX.X) indices could be
just the recipe for renewed selling in our play. Aggressive
traders got a nice entry point as the weak rally fell apart near
the $47.50 level and the stock rolled over again. Failed
intraday rallies will continue to provide attractive entry
points as we wait for the next breakdown, just so long as our
stop at $50 remains intact. Waiting for the $45 level to fail
as support may appeal to more conservative traders. Confirm
sector weakness by watching both the SOX.X and the NWX.X.
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**************
NEW CALL PLAYS
**************
AGGRESSIVE:
HAL - Halliburton Company $41.63 +1.81 (+3.88 this week)
Founded in 1919, Halliburton Company is the world's leading
diversified energy services, engineering, energy equipment,
construction, and maintenance company. In 1999, Halliburton's
consolidated revenues were $14.9 billion, and it conducted
business with a work force of approximately 100,000 in more
than 120 countries.
After falling from a high of $54.69 last September to a low
of $34.19 on December 4, HAL has made a solid series of higher
lows over the last month and a half, at $34.19, $36 on January 3,
and $37.17 on January 17. After breaking through the 50 dma
of $38.31 yesterday, HAL is poised to rally into its earnings
release date January 30. HAL is being propelled by strength
in the oil drilling and equipment sector, as well as exciting
news released by the company. The energy sector has been strong
recently, and the oil and gas companies got an extra boost
last week and this week with better than expected earnings from
Exxon Mobil and Schlumberger. SLB reported last week that
their profits quadrupled, as high oil and natural gas prices
prompted oil companies to increase their spending on exploration
and production. Yesterday, XOM posted a world record for
profits, and a huge rise in fourth quarter earnings. And as if
that wasn't enough, Enron announced today that they had raised
their earnings target for 2001. This news helped to propel
HAL past the 10 dma of $39.18, and an additional catalyst
may have been the news released that HAL is in a bid with four
other companies for a nine billion pound British air force
requirement for a new fleet of mid-air refueling aircraft. The
winning contractor could use the tankers for additional
commercial uses. Depending on market conditions, HAL may pull
back to support at $41, which could be an entry point. A
stronger entry point could be found upon HAL's clearing of the
200 dma, just a fraction above its current price at $41.83.
From there, it could be clear sailing up to $44. Watch the
oil exploration sector stocks, like SLB, BHI and RDC for
strength, and set stops at $40.
BUY CALL FEB-35 HAL-BG OI= 420 at $7.00 SL=5.00
BUY CALL FEB-40*HAL-BH OI=3601 at $3.00 SL=1.50
BUY CALL MAR-40 HAL-CH OI= 408 at $4.25 SL=2.50
BUY CALL MAR-45 HAL-CI OI=1409 at $1.94 SL=1.00
http://www.premierinvestor.com/oi/profile.asp?ticker=HAL
ENE - Enron Corporation $82.00 +2.25 (+8.75 this week)
Enron Corporation is an energy and communications company.
Enron's operations are conducted through its subsidiaries
and affiliates, which principally are engaged in the
transportation of natural gas through pipelines to markets
throughout the United States, the generation, transmission,
and distribution of electricity to markets in the northwestern
United States, and the marketing of natural gas, and commodities.
Enron is also involved in the development, construction and
operation of power plants, and the development of an intelligent
network platform to provide bandwidth management services.
The California energy crisis has increased the public and
investors' awareness of the increasing demand for natural
gas, and other sources of energy. This has benefited the
energy sector, which includes oil producers, as well as
independent power producers, and natural gas utility
companies such as Enron. While Enron stayed above its
200 dma for most of last year, the stock has demonstrated
a very high level of technical strength recently. Excellent
earnings released by the company, as well as increased
projections for next year, have driven ENE well above the
50 dma of $75.61, and the 5 dma of $77.23 on double the
average daily volume Thursday. On Monday, Enron reported
a 25% increase in net earnings, and a 32% increase in net
income, easily surpassing the analysts' estimates. While
this stimulated buying interest, the real catalyst was
an announcement by Enron that they had raised their
earnings expectations for 2001 to $1.75 per share from $1.70
per share, on the strength in the wholesale energy market, as
well as excellent prospects for its retail energy business.
This news helped to push Enron above strong resistance at $80
on heavy volume. The next resistance level is $83, and a
break through this level on strong volume has the potential
to push Enron to its next resistance level at $86.94, and
possibly its 52-week high at $90.75. Traders can also take
positions at current levels, or at a pullback to support at
$81, if accompanied by strength in the natural gas sector.
Watch others like CGP, EPG and WMB for sector strength. Set
stops at $78.
BUY CALL FEB-80 ENE-BP OI=3224 at $5.38 SL=3.50
BUY CALL FEB-85*ENE-BQ OI=1761 at $2.63 SL=1.25
BUY CALL MAR-80 ENE-CP OI= 798 at $7.25 SL=5.25
BUY CALL MAR-85 ENE-CQ OI=1587 at $4.50 SL=2.75
http://www.premierinvestor.com/oi/profile.asp?ticker=ENE
EMC - EMC Corporation $76.50 -2.94 (-0.81)
EMC wants to be your storage solution. The company designs,
manufactures and markets a wide range of enterprise storage
systems, software, networks, and services. The company's
products store, retrieve, manage, protect and share information
from all major computing environments including mainframe, UNIX,
and Windows NT. With offices around the world and a 35% growth
rate for the first 9 months of the year, EMC is effectively
filling its role as the worldwide storage leader.
As we move through the heart of earnings season, there are clear
winners and clear losers. EMC is clearly a winner, beating the
street by 2 cents and guiding analysts to expect higher growth
going forward. Not only is this music to investors' ears, but
it is much different from the "slowdown" mantra being parroted
by so many leading technology companies. Fears that EMC would
fail to impress the street led to the selloff that dragged the
storage leader as low as $53 at the beginning of the year.
Since then the bulls seem to have achieved the upper hand in
their battle with the bears, gradually driving the stock higher,
and actually cresting the 200-dma ($79.88) for a short time
yesterday. The GLW-related selloff dragged EMC back during
today's session, but the stock is still looking solid. Before
running out to buy calls, keep in mind that this is an
aggressive play, as daily Stochastics are threatening to roll
over if the bulls don't charge soon. If the NASDAQ rolls over
ahead of the FOMC meeting, it is unlikely that EMC will be able
to keep its head above water and will likely violate our $72
stop. However, if the bulls can reassert themselves, like
they appeared to have done during the rebound this afternoon,
we could see our play clear the 200-dma and begin to use it for
support once again. Another bounce above our stop will make
for a valid entry, as would a volume-backed move through $80.
BUY CALL FEB-75 EMC-BO OI= 8290 at $5.63 SL=3.50
BUY CALL FEB-80*EMC-BP OI=11733 at $2.94 SL=1.50
BUY CALL FEB-85 EMC-BQ OI=10307 at $1.31 SL=0.75
BUY CALL APR-80 EMC-DP OI= 9294 at $7.88 SL=5.50
BUY CALL APR-85 EMC-DQ OI= 4789 at $6.13 SL=4.00
SELL PUT FEB-70 EMB-NN OI=26454 at $2.00 SL=3.50
(See risks of selling puts in play legend)
http://www.premierinvestor.com/oi/profile.asp?ticker=EMC
PFE - Pfizer, Inc $44.44 +1.50 (+3.06 this week)
Pfizer develops, markets and manufactures technology-
sensitive products in the field of medicine. Pfizer is the
leading US maker of pharmaceuticals. It developed the ever
so popular anti-impotence drug, Viagra. They also are top
producers in Animal Health and Consumer Health care products.
Some brands you may be familiar with are BenGay muscle rub
and Visine eyedrops.
In the glow of positive sentiment, Pfizer investors bid up the
stock's share price up in front of the earnings' release
yesterday. The icing on the cake was PFE didn't sell-off on the
news! Today we saw PFE break through the $43 resistance and
advance a respectable 3.5% on strong volume. The subsequent
technical developments above the intersected 30, 50 & 200 DMAs,
at the $43 and $44 levels, further exemplifies PFE's strength.
Overall the sector is flying high, too! This week other leaders
in the industry like Merck (MRK) and Bristol Myers (BMY) also
posted solid earnings, which gave drug stocks across the board a
nice boost. If a deep pullback were to occur amid a declining
market, the $43 level should buoy PFE during the storm. If it
didn't, we'd quickly exit the play and move on to more lucrative
opportunities. From the bullish perspective, look for PFE's
share price to bounce off today's $44 support and challenge the
first line of opposition at $46 and $47. The 52-week record is
a bit higher at $49.25, just a fraction under the $50 level.
The more cautious momentum players may want to be patient for
PFE to break this overhead barrier or at least, consider taking
profits as PFE approaches this formidable line of resistance.
BUY CALL FEB-40 PFE-BH OI= 2693 at $4.88 SL=3.00
BUY CALL FEB-45*PFE-BI OI= 5575 at $1.13 SL=0.50
BUY CALL MAR-40 PFE-CH OI= 1865 at $5.50 SL=3.50
BUY CALL MAR-45 PFE-CI OI=16921 at $1.94 SL=1.00
BUY CALL MAR-50 PFE-CJ OI= 9409 at $0.50 SL=0.00
http://www.premierinvestor.com/oi/profile.asp?ticker=PFE
BGEN - Biogen, Inc. $66.75 +0.69 (+7.31 this week)
Biogen, Inc., winner of the 1998 U.S. National Medal of
Technology, is a biopharmaceutical company principally engaged in
discovering and developing drugs for human healthcare through
genetic engineering. Headquartered in Cambridge, MA, the
Company's revenues are generated from worldwide sales of Avonex
for treatment of relapsing forms of multiple sclerosis, and from
the worldwide sales by licensees of a number of products,
including alpha interferon and hepatitis B vaccines and
diagnostic products. Biogen's research and development
activities are focused on novel products for multiple sclerosis,
inflammatory, respiratory, kidney and cardiovascular diseases and
in developmental biology and gene therapy.
Every good Biotech has its star drug and for Biogen, it's Avonex.
As such, the company's earnings are closely connected to sales
of its multiple scerlosis (MS) treatment. Beating Street
estimates by a penny last week with its fourth quarter earnings
report, BGEN posted record sales numbers for Avonex. What's
more, the company has been expanding its market for the drug, as
recent test results indicated that Avonex was successful in
reducing progression of the disease in non-qualified MS patients.
Not to rest on its laurels, the company has been working on
expanding its pipeline. Its Crohn's Disease treatment Antegren
will be entering Phase III trials, while results for Psoriasis
drug Amevive, currently in Phase III, should be forthcoming by
the middle of the year. Having recently made it back above all
its major moving averages, the stock has been advancing on the
back of support from its 5-dma ($64.13). Recent bullishness has
created a gap between our stop price of $62 and $64. If BGEN
fills this gap, then a bounce off the $62 level could provide
aggressive traders with an ideal entry point. However, the stock
could also find support at $65 and $64. If BGEN can close above
the $67 level, this could suggest further near term upside,
allowing conservative players to jump in, provided that sector
sentiment, tracked by following AMEX's Biotech Index (BTK) and
Merrill Lynch's Biotech HOLDR (BBH), supports the rally.
BUY CALL FEB-60 BGQ-BL OI=2315 at $8.38 SL=6.00
BUY CALL FEB-65*BGQ-BM OI=2407 at $4.74 SL=2.75
BUY CALL FEB-70 BGQ-BN OI=2165 at $2.38 SL=1.25
BUY CALL MAR-65 BGQ-CM OI= 130 at $6.88 SL=5.00
BUY CALL MAR-70 BGQ-CN OI= 373 at $4.50 SL=2.75
http://www.premierinvestor.com/oi/profile.asp?ticker=BGEN
*************
NEW PUT PLAYS
*************
AGGRESSIVE:
AGIL - Agile Software Co $38.44 -3.19 (-6.50 this week)
Agile develops and markets product content management software,
which is software that enables companies to collaborate over
the Internet by interactively exchanging information about the
manufacture and supply of products and components. Agile's
collaborative suite of software products is designed to improve
the ability of all members of the manufacturing supply chain.
Since their start in 1996, they have licensed their products to
approximately 300 customers including Gateway, Texas
Instruments, Lucent Technologies, and Solectron. About 40% of
sales come from additional material procurement applications,
consulting, implementation, support, and training services.
If you look back a couple weeks, it first appeared AGIL was on a
strong path to recovery off its $24 low on January 8th. But as
it turned out, the prevailing 30-dma line kept a tight lid on
the sharp, upward advances. A trading range between $43 and $46
hence, developed and AGIL was kept locked in a narrow tunnel of
consolidation. The subsequent breakdown in the share price this
week is, quite honestly, a diverge from other leading Internet
software stocks like Ariba (ARBA) and I2 Technologies (ITWO),
who are currently manages quite well at their higher trading
levels. Therefore, it'll be especially important to pay
attention to AGIL's individual nuances - price/volume activity.
The three-day decline coupled with today's slide under the $40
support prompted us to add AGIL on technical merits. Entries
into the downtrend will ultimately depend on your personal risk
portfolio. Some entry strategies include taking positions on a
further breakdown in the share price, on bounces off the 5-dma
($42.79), or if you're really adventurous - on high-volume
rollovers near the 10-dma ($44.28). Expect the $30 level to
offer some support on the decline. But no matter how you plan
to execute your entries and exits, it'd be wise to use
protective stops. Ours is set at $44 and we'll exit the
play without a second thought if AGIL closes above this mark.
BUY PUT FEB-45 AUG-NI OI=110 at $9.63 SL=6.50
BUY PUT FEB-40*AUG-NH OI= 80 at $6.38 SL=4.25
BUY PUT FEB-35 AUG-NG OI= 6 at $3.75 SL=2.00
http://www.premierinvestor.com/oi/profile.asp?ticker=AGIL
CHKP Check Point Software $143.44 -6.38 (-6.38 this week)
Check Point provides Internet security. The company provides
secure enterprise networking solutions that enable customers
to implement centralized policy-based management with enterprise-
wide distributed deployment. Simply put, CHKP has benefited
from rising demand for its virtual private networks software
which lets remote workers, business allies and customers
securely access corporate computer networks.
Riding the NASDAQ rally throughout much of this past month,
CHKP is getting tired, as you can see by the rollover in the
past 2 sessions. After reporting blowout earnings on January
18th, the bulls got a shot of adrenaline and ran the stock right
up to the upper Bollinger band in short order. Nothing moves
straight up, and after a 34% rally in two short weeks, it
appears the bulls have headed back out to pasture for awhile.
Even blowout earnings from competitor VRSN yesterday couldn't
prop up CHKP today, strengthening the case for our new play.
It is a classic rollover, with the price falling back from the
upper Bollinger band, and stochastics just starting to drop out
of the overbought region. The fact that the $145-147 support
level didn't hold today, tilts the balance in favor of the
bears, and we are looking for the stock to continue giving
back its recent gains. Below current levels, there is little to
point at in terms of recent support until we reach $130, also
the site of the 50-dma. Anticipation of the FOMC meeting next
week could still provide some support, so we are placing our
stop at $154 to protect against unbridled enthusiasm. While
aggressive investors may want to look at failed intraday rallies
to the $149 or $154 levels as opportunities to enter the play,
more conservative players may want to wait to enter on continued
weakness. Falling below the $140 level on solid volume looks
like just the ticket. Of course, a couple of less-than-stellar
earnings announcements from other tech heavyweights, could help
to drive our play lower along with the broader NASDAQ - use it
to gauge market sentiment before playing.
BUY PUT FEB-145 KGE-NI OI=162 at $14.50 SL=10.50
BUY PUT FEB-140*KGE-NH OI=456 at $12.00 SL= 9.00
BUY PUT FEB-135 KGE-NG OI=178 at $10.00 SL= 7.00
http://www.premierinvestor.com/oi/profile.asp?ticker=CHKP
PWER - Power-One, Inc. $45.75 -3.06 (+0.50 this week)
Power-One is one of the ten largest power supply manufacturers in
the world, excluding the personal and consumer markets. Products
include DC rack-power-systems for telecom and Internet Service
Providers (ISPs) and embedded OEM power supplies for
communications equipment manufacturers. Management expects that
70-75% of Q4 sales will be to the communications industry.
Power-One also supports key customers in the semiconductor-test
capital-equipment industry and other high-end industrial markets.
Finding a bottom at the $30 level earlier in the year, shares of
PWER have moved higher thanks to a healthier broader market. Its
advance however, was fairly subdued, as indicated by the low
volume during its rise. Connecting the highs since October of
2000 reveals an intermediate term downtrend line. While the
NASDAQ and many of its components have broken definitively out of
their pattern of lower highs, PWER has failed to surpass this
level. Earlier this week, the stock managed to make it above its
50-dma but the breakout was without conviction. Since then, PWER
has slipped back below this moving average and today, the 50-dma
acted as formidable resistance. The company reported strong
earnings yesterday. Despite posting stellar results and bullish
forecasts of 55 to 60 percent net sales growth going forward for
the year, shareholders sold the stock off and with that, PWER
failed to test its 200-dma near $54. Part of this could be
attributed to the CFO commenting that the company could be making
acquisitions in the near future. Nonetheless, this was enough to
sour the technical picture. Stochastics have begun to roll over
and PWER is threatening to break below its 10-dma support (at
$48.43). If the stock falls below this moving average on strong
selling volume, this would be the signal for conservative traders
to take a position, but wait for $45 support to be violated
before making a play. A failed rally off overhead resistance
from the 5-dma at $47.41, the 50-dma at $48.63 and our stop price
of $50 could allow higher risk players to enter. Before jumping
in, make sure that sector sentiment is on your side by watching
competitors BLDP and FCEL.
BUY PUT FEB-50 OGU-NJ OI=106 at $7.75 SL=5.75
BUY PUT FEB-45*OGU-NI OI=287 at $4.63 SL=2.75
http://www.premierinvestor.com/oi/profile.asp?ticker=PWER
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*********************
PLAY OF THE DAY - PUT
*********************
IDTI - Integrated Device Tech. $45.56 -0.69 (-4.69 this week)
Integrated Device Technology designs, develops, manufactures
and markets a broad range of high-performance semiconductor
products. The company serves up products for data networking
and telecommunications equipment such as routers, hubs,
switches, cellular base stations, storage area networks,
networked peripherals, servers, and personal computers. About
70% of sales are from communications and high-performance
logic components such as embedded RISC microprocessors,
specialty memory, logic and clock management circuits, and
networking devices.
Most Recent Write-Up
As the NASDAQ faltered under the load placed on it by negative
news from GLW in its conference call last night, our play on IDTI
managed to hold its ground. Given the fact that it didn't
significantly break down over the past 2 days, it would seem to
indicate that the selling pressure from the company's earnings
miss last week is losing steam. Although the stock did creep
lower over the past 2 days, IDTI is now resting right on the $45
support level. Selling volume has been drying up, and we will
need to see the bears come back to life to drive the stock below
this level. Further declines in the Networking (NWX.X) and
Semiconductor (SOX.X) indices could be just the recipe for
renewed selling in our play. Aggressive traders got a nice entry
point as the weak rally fell apart near the $47.50 level and the
stock rolled over again. Failed intraday rallies will continue
to provide attractive entry points as we wait for the next
breakdown, just so long as our stop at $50 remains intact.
Waiting for the $45 level to fail as support may appeal to more
conservative traders. Confirm sector weakness by watching both
the SOX.X and the NWX.X.
Comments
Downward pressure on Semis tomorrow will be attributed to PMCS,
which met estimates but stated on the conference call that there
is no Q2 visibility. We are looking for this selling pressure
to affect other Semi stocks, and our play IDTI. Look for entry
points into this put play on a break through $45. Next support
level is $40.
BUY PUT FEB-50 ITQ-NJ OI=787 at $7.13 SL=5.25
BUY PUT FEB-45*ITQ-NI OI=575 at $4.13 SL=2.50
BUY PUT FEB-40 ITQ-NH OI=916 at $1.94 SL=1.00
http://www.premierinvestor.com/oi/profile.asp?ticker=IDTI
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COMBOS/SPREADS/STRADDLES
************************
Industrial Stocks Rally On Greenspan's Optimistic Outlook!
Blue-chip issues rebounded today as investors rotated money out
of the technology segment and into Old Economy companies.
Wednesday, January 24
The market traded in a small range today as investors exhibited
caution ahead of a key economic report and Alan Greenspan's
upcoming testimony before the Senate Budget Committee. The Dow
ended relatively unchanged at 10,646 while the NASDAQ closed up
18 points at 2,859. The S&P 500 index was up 3 points to 1,364.
Trading volume on the NYSE hit 1.28 billion shares, with winners
edging losers 1,447 to 1,411. Activity on the Nasdaq was heavy
at 2.55 billion shares exchanged, with advances beating declines
2,079 to 1,741. In the bond market, the 30-year Treasury fell
5/32, pushing its yield up to 5.69%.
Tuesday's new plays (positions/opening prices/strategy):
Am. Online (NYSE:AOL) FEB55C/FEB55P $5.90 debit straddle
Omnicom (NYSE:OMC) APR90C/APR90P $12.50 debit straddle
Edgewater (NASDAQ:EDGW) FEB7.5C/FEB5P $0.00 credit synthetic
Both Omnicom and American Online provided the target entry prices
in our new debit straddles. However, the synthetic position in
Edgewater was the most surprising play of the session and the
event was certainly a learning experience. Before the open, the
company announced it had successfully completed its $8 per share
tender offer for 16.25 million shares, or 56% of its outstanding
stock. Edgewater said the offer was oversubscribed and that 26
million shares were tendered. The company now plans to accept a
larger number of shares after the pro-ration factor is finalized.
Normally, when a tender offer is completed, the stock tends to
remain near that price, as the tender price is usually considered
a good indicator of market value. In this case, there appears to
be other factors in play because the market-makers had the FEB-$5
puts priced perfectly. Even though the stock opened $1.75 lower,
the premium for the option remained near $0.38 for the first hour
of trading. By 10:30 A.M, the option was bid at only $0.12, as
EDGW moved up to $5.50. While the naked-put position provided a
cost basis near $4.62, the call option was obviously far less
inviting, and we did not initiate the play. Because we are also
interested in learning the specific factors that produced this
price activity, we welcome any comments or insight concerning the
tender offer.
Portfolio Plays:
Stocks consolidated today as investors digested an assortment of
earnings announcements and waited for Fed Chair Alan Greenspan to
offer some clues on the direction of interest rates. Analysts
expect the nation's top economic policy maker to call for debt
reduction and provide guidance regarding the FOMC's future plan
for interest rates. On the Dow, McDonald's (NYSE:MCD) was the
big loser, falling to $30 after missing analysts' estimates by a
penny and saying it sees earnings growth of 10% to 13% in 2001.
Minnesota Mining (NYSE:MMM), Johnson & Johnson (NYSE:JNJ), and
SBC Communications (NYSE:SBC) also retreated during the session.
Among technology issues, Compaq Computer (NYSE:CPQ) moved higher
after the computer maker affirmed analysts' profit expectations
for the first quarter. Hardware stocks also rallied with Dell
Computer (NASDAQ:DELL) and Hewlett-Packard (NYSE:HWP) leading the
way. In the software segment, Siebel Systems (NASDAQ:SEBL) and
Microsoft (NASDAQ:MSFT) were among the top performers and Lucent
(NYSE:LU) led the telecom group. In the broader market sectors,
utility, online brokerage and biotechnology shares advanced while
airline and paper stocks consolidated. Defensive issues such as
gold, consumer products and major drugs also retreated during the
session.
The Spreads portfolio enjoyed a number of bullish surprises and
the upside activity provided some great early-exit opportunities.
Portal Software (NASDAQ:PRSF) soared almost 40% after the maker
of business infrastructure software announced it has secured a
deal with Tellme Networks. PRSF said it will provide Internet
customer management billing platforms for TellMe and investors
applauded the deal. The stock closed up $3.22 at $11.75 and our
closing cost basis was near $10.50, a profit of 37% in less than
three weeks. Bell Microproducts (NASDAQ:BELM) surged to a high
near $24 during the session, providing a $1.75 closing profit in
our brand new synthetic position. With the $0.12 opening credit,
the $1.62 exit premium offered a favorable return after only two
days in the position. Another popular issue in the electronics
group, power management devices company International Rectifier
(NYSE:IRF) rose $2.18 to $48.93 after posting quarterly earnings
of $46 million, or $0.71 a share, compared with $12 million, or
$0.23 a share, last year. Analysts had expected profits of only
$0.66 a share. Our bullish position at $35 is at maximum profit.
A few industrial issues participated in the upside activity and
the top performers in that category included Lennar (NYSE:LEN)
and Household International (NYSE:HI). Our straddle position in
newly merged AOL Time Warner (NYSE:AOL) was also active as the
company announced it will lay off about 2,000 employees, or 3%
of its 85,000 worldwide workforce. The stock traded as high as
$57.10.
Thursday, February 25
Blue-chip issues rebounded today as investors rotated money out
of the technology segment and into Old Economy companies. The
the Dow closed 82 points higher at 10,729 while the NASDAQ fell
104 points to 2,754. The S&P 500 index ended 6 points lower at
1,357. Trading volume on the NYSE hit 1.2 billion shares, with
winners beating losers 1,594 to 1,239. Activity on the NASDAQ
was moderate with 2.28 billion shares exchanged. Technology
declines beat advances 2,229 to 1,589. In the bond market, the
30-year Treasury rose 29/32, pushing its yield down to 5.59% as
evidence of a weakening economy pointed to 50-basis-point rate
cut next week.
Portfolio Plays:
Industrial stocks rallied today amid a recovery in cyclical and
drug issues but the technology group, which is up over 10% this
year, retreated as investors sold for profits after the NASDAQ's
recent gains. The rotation from sector to sector was widespread
with traders moving into paper, chemical, consumer, oil service,
and utility stocks while shares of biotechnology and financial
companies suffered from selling pressure. Among the technology
segments, Internet, networking and semiconductor shares led the
decline. Some of the bullish activity in blue-chip stocks was
attributed to Alan Greenspan's bold remarks in a speech to the
Senate Budget Committee. The Fed chief said economic growth has
slowed dramatically, adding that the United States is close to
zero growth. He also commented favorably on President George W.
Bush's proposed tax cuts, saying that it's better to lower the
budget surpluses with tax reductions rather than using spending
increases. Greenspan also suggested that if the current economic
weakness spreads beyond what now appears likely, having a tax cut
in place may do noticeable good. Based on the bullish remarks,
analysts believe the Federal Reserve Chairman is not opposed to
a rate cut and that bodes well for the near-term future of the
stock market.
There was little activity in the Spreads Portfolio today. The
majority of issues in the technology group retreated and only a
few of the industrial stocks made significant moves. A number
of small-cap companies performed well and the standout issue in
that category was Ericsson (NASDAQ:ERICY). The stock moved up
almost $2 at midday on a rumor that the Swedish mobile phone
maker will partner with Japan's electronics giant Sony (NYSE:SNE).
In addition, most shares of European companies traded in the U.S.
experienced excellent gains after Federal Reserve Chairman Alan
Greenspan gave support to President George Bush's plan for tax
cuts, sparking hope on Wall Street for an injection of cash into
the equity markets. The fact that the U.S. economy is solid and
may receive a boost from future tax cuts is expected to benefit
American Depositary Receipts. Another issue that performed very
well was NS Group (NYSE:NSS), moving above the $10 mark for the
first time in over three months. Our bullish synthetic position
is offering a $1.25 return and we expect the profit to increase
during the next few weeks; the options do not expire until April.
Adelphia Business Systems (NASDAQ:ABIZ) and Boston Scientific
(NYSE:BSX) also moved higher and both of those positions can be
closed for favorable profits. Timken (NYSE:TKR) traded higher
for the first time since last Friday's upside spike and if you
didn't take the $1.00 closing gains at that time, consider a
profitable exit as the issue moves back to its current supply
area near $17.
Questions & comments on spreads/combos to Contact Support
******************************************************************
- NEW PLAYS -
Today I received another request for new Credit Spread candidates.
Unfortunately, I can only comply with part of the request because
I did not find many technology issues that had favorable chart
patterns and also offered viable option premiums (for downside
protection). So, I decided to search the industrial groups and
these are the candidates I discovered. All of these plays offer
reasonable risk versus reward potential but they should also be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.
******************************************************************
HBC - HSBC Holdings $79.20 *** Technicals Only! ***
HSBC Holdings PLC (NYSE:HBC) is a banking and financial services
organization with a market capitalization of over $100 billion.
Through its global network of more than 5,000 offices in 80
countries and territories, HSBC provides a comprehensive range
of financial services to personal, commercial, institutional,
corporate and investment banking clients. HSBC's principal
banking products and services include deposits, lending and
related services, treasury and capital markets operations (such
as foreign exchange, bullion, primary debt issuance and eurobond
trading), trade services, leasing, finance (also installment and
invoice finance) and factoring, payments and cash management,
insurance and custodial services. In addition, in certain key
locations such as London, the Hong Kong SAR and New York, HSBC
has significant investment banking operations that, together
with its commercial banks, enable the company to serve the
requirements of its large corporate and institutional customers.
Financial stocks are continuing to perform well in anticipation
of another reduction in interest rates. Lower rates boost these
industries particularly since they make it cheaper for companies
and consumers to borrow money. In addition, analysts say that
larger banks and brokerages enjoy greater benefits from further
rate cuts as they are not as exposed to the problem of eroding
credit quality. Investors appear to agree with this outlook as
they pushed HBC to a new high in yesterday's session and the
potential for further gains is excellent. Those of you who have
a bullish viewpoint for the issue can speculate conservatively
on its future movement with this (OTM) put-credit spread.
PLAY (conservative - bullish/credit spread):
BUY PUT FEB-70 HBC-NN OI=12 A=$0.30
SELL PUT FEB-75 HBC-NO OI=2100 B=$0.80
INITIAL NET CREDIT TARGET=$0.60-$0.70 ROI(max)=14% B/E=$74.40
/charts/jan01/charts.asp?symbol=HBC
******************************************************************
ACAI - Atlantic Coast Airlines $45.00 *** A Big Day! ***
Atlantic Coast Airlines Holdings (NYSE:ACAI) and its subsidiaries,
comprise a regional airline serving 51 destinations in 23 states
in the eastern and mid-western United States, with 576 scheduled
non-stop flights system-wide every weekday. ACAI is the holding
company of Atlantic Coast Airlines (ACA) and Atlantic Coast Jet.
ACA markets itself as United Express and is the only code-sharing
regional airline for United Airlines, operating as United Express
in the eastern United States. ACJet is in the pre-operating stage,
awaiting government certification as a scheduled airline, and has
negotiated a fee-per-departure agreement with Delta Air Lines to
operate as a Delta Connection carrier in the northeastern United
States. ACAI operates a fleet of almost 100 aircraft having an
average age of six years, and the company's top five airports are
are Washington-Dulles, Chicago O'Hare, New York-JFK, Newark, and
Raleigh-Durham.
Atlantic Coast Airlines reported excellent earnings today, with
fourth quarter income of $10.4 million, or $0.47 per diluted share.
The results compare favorably to fourth-quarter 1999 net income of
$6 million or $0.29 per diluted share. For the full year, ACAI
reported net income of $31.1 million, or $1.44 per diluted share,
compared to 1999 income of $29.2 million. Passenger revenue for
the year 2000 was $442 million, a year-over-year increase of 29%.
The company also declared a 2-for-1 common stock split, payable as
a stock dividend on February 23, to stockholders of record at the
close of business on February 9, 2001. Investors applauded the
positive results, pushing the issue up almost $4 to a new all-time
high. Now the question is whether the issue can remain above the
old trading range after the excitement subsides. Since the recent
support area near $37 is relatively well established, the downside
potential in this position appears to be limited. Target a higher
premium initially, to allow for consolidation after today's rally.
PLAY (conservative - bullish/credit spread):
BUY PUT FEB-35 QKA-NG OI=450 A=$0.56
SELL PUT FEB-40 QKA-NH OI=0 B=$1.12
INITIAL NET CREDIT TARGET=$0.75-$0.88 ROI(max)=17% B/E=$39.25
/charts/jan01/charts.asp?symbol=ACAI
******************************************************************
AFL - AFLAC $62.44 *** Sector Slump! ***
AFLAC is a general holding company whose primary business is
supplemental health and life insurance, which is marketed and
administered primarily through its subsidiary, American Family
Life Assurance Company of Columbus (AFLAC), which the Company
believes to be the world's leading writer of cancer expense
insurance. AFLAC Japan, in addition to cancer plans, also sells
care plans, supplemental general medical expense plans, medical
and sickness riders to its cancer plan, and a living benefit life
plan. AFLAC U.S. also sells other types of supplemental health
insurance, including hospital intensive care, accident and other
disability, hospital indemnity, long-term care and short-term
disability plans. They also offer several life insurance plans
in the United States and Japan.
Insurance companies have struggled over the past few weeks in the
wake of broad-based selling pressure. The reasons for the slump
are two-fold. First, the sector has performed very well over the
last year as a defensive option for investors exiting technology
stocks. Second, insurance companies are less likely to benefit
from a decline in interest rates. Insurance providers that write
traditional life insurance, as well as the related products of
supplemental health insurance experience negative results from
lower rates because the yield they earn on investment portfolios,
funded by premiums taken in on the policies, moves lower whereas
their liabilities continue to grow at the same rate. The result
is a decline in net interest margins, and that doesn't help the
company's bottom line. Traders who agree with a bearish outlook
for the sector can speculate on its future movement with this
conservative position.
AFL will release fourth quarter financial results after the close
of trading on January 29, 2001.
PLAY (conservative - bearish/credit spread):
BUY CALL FEB-75 AFL-BO OI=1289 A=$0.56
SELL CALL FEB-70 AFL-BN OI=4346 B=$0.93
INITIAL NET CREDIT TARGET=$0.50-$0.56 ROI(max)=11% B/E=$70.50
/charts/jan01/charts.asp?symbol=AFL
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